Many taxpayers do not qualify to deduct the cost of their license plates on their tax returns. License plates for personal vehicles are not a recognized income tax deduction. However, ad valorem tax, added to the cost of annual plate registration, is tax-deductible for individuals who use itemized deductions.
There are also specific situations that may allow taxpayers to deduct the cost of vehicle license plates: using a car for business purposes or purchasing a charity-sponsored license plate.
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Consider also: Charitable Contributions: Tax Deductions & What You Need to Know
Ad Valorem Tax
Ad valorem tax is an annual fee imposed on a vehicle based on its value. Taxpayers who own a vehicle pay this amount yearly to keep the registration current. Typically, the total due includes a charge for mailing and a charge for the yearly tag.
While the mail and tag fees are not tax-deductible, the total ad valorem tax can be deducted if the taxpayer qualifies to itemize deductions on Schedule A. When many people speak about "deducting their license plates," they are referring to deducting the ad valorem tax on their vehicles.
Business Use of Vehicle
Small-business owners who purchase a car that is used exclusively or largely for business may deduct both the ad valorem tax and the cost of the license plate. Car and truck expenses must be calculated using either the standard mileage rate or the actual amount of yearly expenses.
Taxpayers who choose to use the actual expenses can deduct the cost of licenses, registration fees and other vehicle costs as a business expense. Individuals who use a vehicle for both personal and business purposes must separate the personal vehicle mileage and costs.
Charitable Organization License Plates
License plates that support a charitable organization are typically more expensive than traditional license plates. The extra fees are a donation to the specific charity and are usually tax-deductible. In order for a charitable contribution to be deducted, it must be given to a qualified, recognized non-profit organization.
The exact amount of the contribution is the only cost that qualifies as a tax write-off. IRS Publication 526 Charitable Organizations explains the acceptable places that qualify your donation as tax deductible.
The cost of the license plate itself is not deductible. Limited deductions for charitable contributions involving cash donations are now available to taxpayers who don't itemize their deductions. You'd need to itemize to claim non-cash donations at all.
The maximum you can claim for cash donations is $300 or $600 for married filing jointly if you do not itemize. You can also find information on this 2021 revision on charitable contributions under Topic No. 506 on the IRS website.
Reporting Deductions on Return
Reporting these license plate and ad valorem tax deductions requires that individuals use the correct forms. Both ad valorem tax and charitable contributions are reported on Schedule A and are deducted if the amount of itemized deductions exceeds the standard deduction for the taxpayer's filing status.
If you file under the standard deduction, you are still eligible to take a deduction for cash donations up to $300 or $600 for joint, married filers. You'll report this on the first page of Form 1040 directly.
Small business owners and independent contractors generally report business vehicle expenses on Schedule C: Profit or Loss From Business.
Consider Also: Schedule A: Instructions on How to Itemize Deductions